OSU Economic Outlook Conference December 4, 213 Chad Wilkerson Vice President, Economist, and Oklahoma City Branch Executive Federal Reserve Bank of Kansas City www.kansascityfed.org/oklahomacity
Overview of the Federal Reserve System The Fed consists of three main entities: Board of Governors: 7 members appointed by U.S. President Federal Reserve Banks: 12 total; semi-independent by design Federal Open Market Committee: 19 members; 12 voting As with most central banks, the Fed s primary responsibilities fall within four general areas: Lender of last resort provide liquidity in times of crisis Monetary policy promote full employment and low inflation Bank regulation ensure safety and soundness of banks Financial services bank for banks, bank for federal govt.
Federal Reserve Districts and Office Locations
The Oklahoma City Branch of the Federal Reserve Bank of Kansas City Functions 4 staff Economic research and outreach for U.S. monetary policy purposes Examinations and inspections of Oklahoma financial institutions Economic and financial education outreach to teachers and citizens Community development outreach to low and moderate income areas 213 board of directors Jim Dunn (chair), Chairman, Mill Creek Lumber & Supply, Tulsa Paula Bryant-Ellis, COO, BOK Financial Mortgage Group, Tulsa Linda Capps, Vice Chairman, Citizen Potawatomi Nation, Shawnee Michael Coffman, CEO, Panhandle Oil & Gas, Inc., Oklahoma City Pete Delaney, Chairman & CEO, OGE Energy Corp., Oklahoma City Doug Tippens, President & CEO, Bank of Commerce, Yukon K. Vasudevan, Chairman, Service & Technology Corp., Bartlesville
The U.S. Economy and Monetary Policy
At mid-year, GDP was growing at about its long-term trend, but differed by sector Growth in Components of Real GDP 25 Percent change from the previous period, SAAR 2 15 Q1 213 Q2 213 Q3 213 14.214.6 12.5 1 8. 5 1.1 2.5 2.8 2.3 1.8 1.5 4.7 1.6 4.5-1.3 -.4 -.2-5 -4.6-4.2-1 Total GDP Consumer spending Residential investment Business investment Exports Government spending Source: U.S. Bureau of Economic Analysis
Recent data suggest solid U.S. growth continued, with steady employment gains U.S. Private Payroll Employment and Business Indexes 6 Change from previous month, thousands Index 65 4 6 2 55 5-2 45-4 4-6 -8 Private Employment (left axis) ISM Manufacturing Index (right axis) ISM Non-Manufacturing Index (right axis) 35 3-1 25 Nov-8 Nov-9 Nov-1 Nov-11 Nov-12 Nov-13 Source: Institute for Supply Management, Bureau of Labor Statistics
Still, the share of the population employed has not risen, as participation has dropped Source: Bureau of Labor Statistics
Both incomes and spending were growing solidly heading into the holiday season Real Disposable Personal Income vs. Personal Consumption Expenditures Seasonally Adjusted 13 $Billions, chained (29) 13 125 12 PCE DPI 125 12 115 115 11 11 15 15 1 1 95 95 9 9 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Source: Bureau of Economic Analysis
For the most part, U.S. industries growing the last 2 years are also growing this year 1 Percent U.S. Employment Growth by Industry 211-213 8 6 211-12 average 213 YTD (annualized) 4 2-2 -4 Total Nonfarm Prof. & Bus. Svcs. Nat. Res. Constr. & Mining Leis. & Hosp. Trade Educ. & Hlth. Finance State & Local Govt. Info. Mfg. Transp. & Util. Fed. Govt. Source: Bureau of Labor Statistics
National rig counts have slipped somewhat but still remain relatively high U.S. Active Drilling Rig Count Seasonally Adjusted 25 Number of rigs 25 Oil 2 Natural Gas 2 15 15 1 1 5 5 Nov-8 May-9 Nov-9 May-1 Nov-1 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 Source: Baker Hughes
In its latest projections, the FOMC expected unemployment to continue to improve Unemployment Rate Seasonally Adjusted 12 Percent 12 1 Sept. FOMC Forecast Ranges in Yellow Long Term 1 8 8 6 6 4 4 2 2 1983 1986 1989 1992 1995 1998 21 24 27 21 213 216 Sources: U.S. Bureau of Labor Statistics, FOMC
Inflation was expected to remain at or near its long-term target through 216 8 Percent change, year-over-year PCE Inflation Index 8 7 7 6 6 5 5 4 3 Sept. FOMC Forecast Ranges in Yellow Long Term 4 3 2 2 1 1 1983 1986 1989 1992 1995 1998 21 24 27 21 213 216 Sources: U.S. Bureau of Labor Statistics, FOMC
On interest rates, most FOMC participants expect little change until 215 12 Percent Federal Funds Rate Year-end target 12 1 1 8 Long Term 8 6 Sept FOMC Forecast Ranges in Yellow 6 4 (12 (2) 4 2 (3) 2 1983 1986 1989 1992 1995 1998 21 24 27 21 213 216 Note Number of participants who project the initial increase will occur in the specified year in parenthesis Sources: Federal Reserve Board, FOMC
The Fed s balance sheet has continued to grow Federal Reserve Balance Sheet 4 Dollars, trillions Assets 4 3 2 1-1 -2-3 Short term lending, targeted lending programs, and rescue operations Other MBS & agency debt Treasury securities Currency Reserves Other 3 2 1-1 -2-3 Liabilities -4 28 29 29 21 21 211 211 212 212 213 213-4 Source: Federal Reserve Board
The Regional Economy
Job growth varies across the nation, but generally lags in the Tenth Fed District Employment Growth, Year-over-Year (percent) October 213.8 1.9.2 1.2 1.3.9 1.2 U.S. = 1.7 Source: U.S. Bureau of Labor Statistics
The government shutdown had measurable negative impacts in several District states Federal Shutdown Economic Growth Reduction Q4 213 Source: Wells Fargo Securities, Pew Center
Most District industries grew similarly to the nation but some, including energy, lagged 6 Percent change year-over-year Employment Growth by Industry October 213 4 2-2 U.S. Tenth District -4-6 Total Nonfarm Constr. Leis. & Hosp. Prof. & Bus. Svcs. Finance Trade Educ. & Hlth. Mfg. State & Local Govt. Transp. & Util. Nat. Res. & Mining Info. Fed. Govt. Source: Bureau of Labor Statistics
Still, unemployment throughout the Tenth Fed District is lower than in the nation Unemployment Rates (percent) October 213 4.6 6.8 6.6 3.9 5.6 6.5 5.5 U.S. = 7.3 Source: U.S. Bureau of Labor Statistics
As in the nation, regional manufacturing activity improved in recent months 65 Index Manufacturing Composite Indexes Month-over-month, Seasonally Adjusted 65 6 6 55 55 5 5 45 45 4 35 KC Fed ISM 4 35 3 3 Nov-8 Nov-9 Nov-1 Nov-11 Nov-12 Nov-13 Source: FRB Kansas City
And expectations for future regional factory activity remain relatively solid 5 Diffusion Index Manufacturing 6-Month Ahead Indexes Seasonally Adjusted 5 4 3 Production 4 3 2 2 1-1 Capital Spending Employment 1-1 -2-2 -3-3 -4-4 Nov-8 Nov-9 Nov-1 Nov-11 Nov-12 Nov-13 Source: ISM, Federal Reserve Banks
Drought conditions have improved markedly since last year, generally helping our region U.S. Drought Monitor, October 212 U.S. Drought Monitor, October 213 Source: USDA
But with lower crop prices, expectations for farm income and spending have eased Tenth District Agricultural Conditions 18 Index Index 18. 16 Capital Spending 16. 14 12 Q4 Expectations 14. 12. 1 1. 8 8. 6 Farm Income 6. 4 25 26 27 28 29 21 211 212 213 4. Source: KCFRB Ag Credit Survey
Meanwhile, year-over-year growth in regional farmland values remained in double digits Tenth District Non-Irrigated Cropland Values Percent Change, Year-over-year 4 Percent 4 35 Q1 213 35 3 Q2 213 Q3 213 3 25 25 2 2 15 15 1 1 5 5 District MO KS Mtn States (CO, NM, WY) NE OK Source: FRBKC Agricultural Credit Survey
Summary Recent U.S. economic growth has been solid with low inflation, but policy uncertainty remains a concern Regional economic activity has been slightly weaker than the nation, due in part to federal government and energy